Need New Business Software? Part III - Software as a Service

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Continuing our series on acquiring new business software, we focus on renting software, or Software as a Service (SaaS). The number of SaaS applications available has increased considerably over the past few years, although there are far fewer options than traditional software. SaaS allows organizations to access software without incurring the capital expenditures of traditional software or the physical IT infrastructure to run it.

Benefits and Risks

The biggest benefit of SaaS is the lack of up front capital investment. In addition, implementation timeframes are often shorter because servers do not have to be ordered and set up. Because the software is located at the vendor site, bug fixes can get applied immediately once completed.

On the risk side, investigate how data is segregated and data privacy is protected, particularly if you are regulated by GLBA, HIPAA, SOX or PCI or have other compliance requirements. Understand what level of availability you require. High availability configurations may be more costly. Investigate service level agreements to make sure penalties for poor service are included. Remember that you are dependent on the vendor, so research the vendor's history and stability. Be aware that it may be harder to find knowledgeable local resources who can offer an alternative to vendor consulting on the project.

Licensing

Licensing fees are typically charged monthly and include both licensing and support costs. They are charged per user. You will sign a contract, typically for a year. Some vendors give discounts for multi-year contracts.
Review the support agreement terms included with the monthly fee. Many vendors have support upgrade options that provide better levels of access and responsiveness. If the software will be used 24x7 and is critical to your organization, look into upgrading the standard support.
New users usually require additional licenses. Keep in mind that volume discounts may be available.

Implementation

The software and your data are located at the vendor's site. You will not have to purchase servers.
Like traditional software, configuration of the software can be complex. Expert assistance can save implementation time and frustration later.
Some vendors, such as salesforce.com, have "quick start" programs to get you up and running quickly.
New servers are not required. Make sure you review the PC recommended requirements and evaluate whether accessing the software could require a larger (or more stable) internet connection. If the software is business critical, consider a backup internet connection as well.
Modifications to the software may be allowed, but they can make upgrading to new versions time-consuming and expensive.

Maintenance

Some vendors allow clients to make changes to the software. Make sure you know the parameters of what is supported during upgrades and how the process will work.
Software upgrades are done by the vendor. The upside is that you don't have to. The downside is that you may have little to no warning and custom changes you have made could be affected.
The software vendor is responsible for backing up the data and restoring it in case of issues.
Consider going into a SaaS agreement thinking about how you will get out. Make sure there are provisions to export your data, preferably during the contract and not just at the end.

As with any other software, make sure the software offered via SaaS meets your business requirements. You may not have the capital outlay, but you still have a significant time investment to get the software configured and to get your employees up to speed.

Our next article will review the custom development software model, including open source software.